Long-Time Steward of Turkey Economy Left Out of New Cabinetby and
Ali Babacan viewed as defender of central bank independence
Mehmet Simsek takes role of coordinating economic policy
Ali Babacan, the minister who helmed Turkey’s $800 billion economy on and off for more than a decade, has been left out of the country’s new cabinet.
Babacan, who had indicated he was reluctant to run for office again in Turkey’s most recent election, was not named to Prime Minister Ahmet Davutoglu’s team when it was announced on Tuesday in Ankara. Mehmet Simsek, the nation’s finance minister since 2009, was promoted to deputy prime minister and will assume Babacan’s role of coordinating economic policy.
Though former Merrill Lynch economist Simsek is also well known to investors, Turkey will have to work harder to build credibility without the familiar presence of Babacan, according to Istanbul-based JPMorgan economist Yarkin Cebeci.
Babacan was viewed by investors “as the guarantor of prudent policies,” Cebeci said in an e-mailed note to clients after the new cabinet was announced. Simsek has also been “instrumental in the achievement of fiscal consolidation,” and his new role “calls for more political power,” he said.
Babacan was credited with implementing an International Monetary Fund reform package that helped steer Turkey out of economic crisis following the AK Party’s first parliamentary election victory in 2002. Growth averaged 7 percent in the party’s first five years in office, but the economy has sputtered recently amid a slew of elections, allegations of corruption and a surge in violence between the army and autonomy-seeking Kurds.
While in office Babacan, like Simsek, was regarded as an advocate of central bank independence -- sometimes defending it against his own colleagues in government. Those views put him increasingly at odds with President Recep Tayyip Erdogan, who has accused the central bank of slowing growth with excessively high interest rates. Simsek said Tuesday he’ll ensure that economic reforms prepared under Babacan are put into effect.
Mustafa Elitas, who’s never held a role in cabinet, was appointed economy minister, a junior position to Simsek’s with responsibilities including trade and import tax.
Turkey’s central bank left all its main interest rates unchanged on Tuesday. Governor Erdem Basci is due to remain in office until April 2016.
"I am more concerned about the central bank next year," Dmitri Barinov, who oversees about $2.6 billion of assets at Union Investment Privatfonds GmbH in Frankfurt, said in response to the appointments. "For me, that is a more crucial position."
The announcement of the new cabinet, which follows the AK Party’s decisive victory in parliamentary elections on Nov. 1, was overshadowed by the diplomatic spat that broke out after Turkey shot down a Russian jet it said infringed its airspace on over its border with Syria.
The lira traded 0.8 percent weaker at 6:16 p.m. in Istanbul, making it the world’s worst-performing emerging market currency, having earlier fallen as much as 1.2 percent.